Treace Medical Concepts, Inc. is a leading medical technology company that has been driving a fundamental shift in the surgical treatment of bunions and related midfoot deformities. Headquartered in Ponte Vedra, Florida, the company has established itself as a pioneer in the industry through its innovative Lapiplasty® and Adductoplasty® Procedures.

Company History and Overview

Treace Medical Concepts was founded on July 29, 2013 as a Florida limited liability company. In July 2014, the entity converted to a Delaware corporation and changed its name to Treace Medical Concepts, Inc. The company received 510(k) clearance for its flagship Lapiplasty System in March 2015 and began selling its surgical medical devices in September 2015.

The Lapiplasty System is a combination of instruments, implants, and surgical methods designed to surgically correct all three planes of the bunion deformity and secure the unstable joint, addressing the root cause of the bunion. This approach is a departure from traditional surgical techniques that focus on correcting the deformity from a two-dimensional perspective, often failing to address the underlying issues.

In addition to the Lapiplasty System, Treace offers a range of advanced instrumentation and implants for use in other procedures performed in high frequency with bunion surgery, including the Adductoplasty System, the Hammertoe PEEK Fixation System, and the SpeedPlate Rapid Compression Implant System.

Treace Medical Concepts has faced challenges over the years as it worked to commercialize its pioneering Lapiplasty System and build adoption among foot and ankle surgeons. The company has had to educate the market on the benefits of its 3D bunion correction approach compared to traditional surgical methods. It has also had to navigate an increasingly competitive landscape as new products and minimally invasive approaches have emerged in the bunion market. Despite these challenges, the company has been successful in driving adoption of the Lapiplasty System, having sold over 100,000 procedure kits in the United States since 2015.

Financials and Key Metrics

Treace's financial performance has been marked by consistent revenue growth, though the company has continued to operate at a net loss as it invests in research and development, sales and marketing, and the expansion of its product portfolio.

For the fiscal year ended December 31, 2023, Treace reported revenue of $187.12 million, representing a 32.2% increase over the prior year. However, the company's net loss for the year widened to $49.53 million, or $0.81 per share, compared to a net loss of $42.82 million, or $0.77 per share, in 2022. Operating cash flow for 2023 was negative $34.58 million, while free cash flow was negative $46.03 million.

In the most recent quarter (Q3 2024), Treace reported revenue of $45.09 million, representing 11% growth over Q3 2023. The net loss for Q3 2024 was $15.36 million, an improvement from the $17.52 million loss in Q3 2023. Operating cash flow for the quarter was negative $11.84 million, with free cash flow at negative $14.71 million.

The revenue growth in Q3 2024 was driven by a 10.6% increase in sales from the Lapiplasty System and related products, amounting to a $4.33 million increase compared to the same period in 2023. This growth was attributed to a product mix shift resulting from increased adoption of newer technologies, higher sales of ancillary products used in bunion cases, and an increase in the number of active surgeons using Treace's products.

Liquidity

As of September 30, 2024, Treace had cash and cash equivalents of $12.11 million. The company also had $16.7 million available under its $30 million revolving loan facility, with $4 million drawn as of the same date. Treace's balance sheet shows a current ratio of 4.12 and a quick ratio of 2.98, indicating strong short-term liquidity. The debt-to-equity ratio stands at 0.51, suggesting a manageable level of leverage.

Operational Highlights and Strategic Initiatives

Treace has been actively expanding its product portfolio and driving innovation to meet the evolving needs of its surgeon customers and their patients. In addition to the Lapiplasty and Adductoplasty systems, the company has recently announced several new product introductions and strategic initiatives:

1. Nanoplasty™ 3D Minimally Invasive Bunion Correction™ System and Procedure: In November 2024, Treace announced the limited market release of the Nanoplasty system, a revolutionary approach to minimally invasive (MIS) bunion surgery. The Nanoplasty system is designed to deliver a reproducible 3D correction of the bunion deformity through a cosmetically appealing, hidden incision on the side of the foot. This represents Treace's first entry into the high-volume metatarsal osteotomy segment of the bunion market.

2. Micro-Lapiplasty and Mini-Adductoplasty Systems: Treace has also introduced new micro and mini versions of its Lapiplasty and Adductoplasty procedures, allowing surgeons to perform these advanced techniques through smaller incisions, further enhancing the minimally invasive nature of the company's solutions.

3. IntelliGuide PSI Cut Guides: Building on its acquisition of RedPoint Medical3D in 2023, Treace is now offering patient-specific instrumentation (PSI) cut guides for its Lapiplasty and Adductoplasty procedures, which are designed to improve surgical precision and outcomes.

4. Expanded SpeedPlate Configurations: The company has continued to enhance its SpeedPlate Rapid Compression Implant System, introducing new configurations to address additional fusion procedures throughout the foot.

These strategic initiatives, combined with Treace's growing sales force and clinical support, position the company to further penetrate the large and underserved bunion market, which is estimated to encompass over 450,000 annual surgical procedures in the United States.

Reimbursement and Regulatory Updates

Treace's products are used in procedures covered by well-established Current Procedural Terminology (CPT) codes, and the company has been proactive in working with regulatory bodies to ensure appropriate reimbursement for its technologies.

In November 2024, the Centers for Medicare & Medicaid Services (CMS) released its final 2025 Medicare payment rates for hospital outpatient and ambulatory surgical center (ASC) services. The final rule included the reassignment of CPT code 28297, a primary code used for the Lapiplasty procedure, to a higher-paying Ambulatory Payment Classification (APC), representing a significant increase in reimbursement for this procedure.

Specifically, the 2025 hospital outpatient payment rate for CPT code 28297 was set at $12,867, an 89% increase compared to 2024. In the ASC setting, the 2025 payment rate for this code increased by 100% to $9,820. These favorable reimbursement changes are expected to improve patient access to Treace's Lapiplasty system and support the company's continued growth.

Competitive Landscape and Risks

Treace operates in a highly competitive medical device industry, facing both established players and emerging competitors. The company's primary competitors in the bunion correction market include Stryker Corporation, Wright Medical Technology (a subsidiary of Stryker), and a number of smaller, regional players.

To protect its intellectual property and technological advantages, Treace has been proactive in building a robust patent portfolio. On October 14, 2024, the company filed a lawsuit against Stryker Corporation and its subsidiary, Wright Medical Technology, alleging infringement of 9 patents related to its Lapiplasty 3D Bunion Correction technologies and unfair competition. The suit was filed in the United States District Court for the District of New Jersey and seeks injunctive relief and damages.

While Treace's innovative products and strong market position provide a competitive advantage, the company faces risks related to the regulatory environment, reimbursement changes, the ability to effectively manage its supply chain, and the potential for increased competition in the minimally invasive osteotomy segment of the bunion market.

Outlook and Conclusion

Looking ahead, Treace remains well-positioned to capitalize on the significant opportunity in the bunion and related midfoot deformity market. The company's innovative product pipeline, growing surgeon customer base, and favorable reimbursement changes provide a strong foundation for continued growth and market share expansion.

Treace has revised its full-year 2024 revenue guidance to a range of $204 million to $211 million, representing a 9% to 13% increase over 2023 revenue. This is an upward revision from the previous guidance of $201 million to $211 million provided in early May 2024. The company also expects to achieve approximately 50% improvement in adjusted EBITDA for the full year 2024 compared to 2023.

The foot and ankle surgical device market, in which Treace operates, is estimated to have a compound annual growth rate (CAGR) of around 5-7% over the next 5 years, providing a favorable industry backdrop for the company's growth initiatives.

As of September 30, 2024, Treace had over 3,000 customer surgeons, demonstrating strong adoption of its technologies. The company markets and sells its products through a combination of a direct employee sales force and independent sales agencies across the United States.

Treace's research and development efforts remain robust, with R&D expenses increasing by $0.61 million, or 14.1%, in the third quarter of 2024 compared to the same period in 2023. This increase was primarily due to higher payroll and related costs resulting from increased headcount of research and development personnel, including stock compensation expense.

As Treace continues to drive innovation, expand its product portfolio, and strengthen its competitive position, the company is well-poised to solidify its leadership in the surgical treatment of bunions and related deformities, while also exploring opportunities to address adjacent market segments. With a strong financial foundation, a robust pipeline of new technologies, and a relentless focus on improving patient outcomes, Treace Medical Concepts remains a compelling investment opportunity in the dynamic medical device industry.